Profit from Canadian-Based Biotechs and Specialty Pharmas: Philippa Flint

July 13, 2012
By George S. Mack
The Life Sciences Report
Source: Profit from Canadian-Based Biotechs and Specialty Pharmas: Philippa Flint:

The Life Sciences Report: Most of your coverage is Canadian-based. Why limit yourself to that?
Philippa Flint: We are a healthcare-specialized boutique investment firm with a primary goal to provide coverage of the Canadian healthcare space. We have long-standing histories with the management teams of the companies we cover, and intimate knowledge of the businesses. We feel that we have home-turf advantage. Because of our physical location in Toronto, we have good access to management, and we can distill stories down. That is not to say we won't cover companies based outside Canada in the future, but at this point in time, we can add value for U.S., Canadian and European clients taking a close look at Canadian companies.
TLSR: As we approach the age of the non-blockbuster and become focused on more personalized therapies, do you see biomarkers and drug development occurring together more commonly?
PF: Definitely. We're already starting to see it. The trend will continue, with companies developing drugs for a specific, appropriate patient population and ensuring that drugs are not given to incorrect patient populations. In times of economic constraint, like we are in now, drug development companies need to make sure they have the greatest chance of success with products.
This also highlights the importance of understanding the biology of a disease during drug development. Companies need to take the time early on, from a preclinical perspective, to understand what they have and how it could potentially be used before progressing to the clinic. We are seeing steps in that direction and it will continue. I have one company under coverage, AEterna Zentaris (AEZS:NASDAQ), that has stated it will not start a phase 3 trial with its targeted oncology drug AEZS-108 (zoptarelin doxorubicin) until it has a diagnostic, so it can most appropriately pick the right patients for treatment.
TLSR: Would you talk about a few of your ideas under coverage?
PF: Sure. Oncolytics Biotech Inc. (ONCY:NASDAQ; ONC:TSX) is fascinating, and it is very much at a critical juncture in terms of company development. We are waiting for data from the first 80 patients of a phase 3-randomized trial of Reolysin (human reovirus) in squamous cell head and neck cancers. These metastatic patients are refractory to platinum-based therapy and are taxane-naïve. This will be the first truly randomized data in a controlled setting for the product.

"In times of economic constraint, drug development companies need to make sure they have the greatest chance of success with products."

In the next month or so, we should see progression-free survival (PFS) data from these patients, who have each been treated for at least 12 weeks. Positive data would be extremely favorably regarded because the drug potentially could be used in a variety of other cancer indications.
The downside comes if the results are negative, as Oncolytics is a one-product company. Although it has four or five randomized phase 2 trials that are ongoing or about to start, investors might not give it the benefit of the doubt, and the stock could drop precipitously. Reolysin is unlicensed and unpartnered, so the data are expected to have a huge impact on the valuation and future of the company.
TLSR: These squamous-cell carcinomas of the head and neck are extremely difficult to treat under any circumstances. These patients are treatment-experienced and that compounds the difficulty. Is this uphill all the way for the company?
PF: I am very encouraged by the phase 2 data, but I am cautious because the head-and-neck data were from an uncontrolled, single-arm study on a limited number of patients. That said, the response rate for Reolysin beats that of anything else on the market. There are very limited choices on the market. The most notable competitor is Erbitux (cetuximab), which can be used in advanced disease but has a response rate of 13% versus Oncolytics' Reolysin, which has a 42% response rate in a phase 2 U.K. study. If Reolysin shows good PFS data, it's off to the races. There will be a lot of interest in the stock, not only from potential partners but also from the standpoint of expanding and gearing up for other indications as quickly as possible.
TLSR: Oncolytics raised $21.3 million ($21.3M) in Q1/12. It was a bought deal that showed a tremendous amount of confidence in the company from the Street.
PF: There are a lot of high expectations for these data. The stock has come off a little from where it was in Q1/12. The proof will be in the pudding, and for many cancer companies, until you have randomized phase-3 data, there is always risk.
TLSR: I made a list of oncolytic viral therapy companies that is not complete but includes Introgen Therapeutics Inc. (INGNQ.OTCPK; filed for Chapter 11 bankruptcy in 2008), BioVex Inc. (acquired by Amgen Inc. [AMGN:NASDAQ] in January 2011), Crusade Laboratories Ltd., GenVec Inc. (GNVC:NASDAQ), Viralytics Ltd. (VLA:ASX), Cell Genesys (merged with Biosante Pharmaceuticals Inc. [BPAX:NASDAQ] in 2009; its oncolytic viral assets were then sold to Cold Genesys Inc.), Neotropix Inc. and Wellstat Biologics Corp. I haven't heard much about these companies or this technology. Does Oncolytics Biotech have an edge in this space?
PF: When I look at Oncolytics Biotech, I don't necessarily see it as a virus company, although it is developing a virus. To me, the competition is with drugs developed for a specific indication regardless of mechanism of action, whether it's a monoclonal antibody like Erbitux or a small molecule. That is what Oncolytics will be competing against in the marketplace, not necessarily another virus company. The products of other viral companies can work in very different ways in the body. I look at the competition in the indication, as opposed to the mechanism of action.
TLSR: When will we see phase 3 data?
PF: Perhaps within the next month, but certainly in Q3/12. I expected it in Q2/12 because I thought management would take a look at these patients earlier. But the company has stated that it will wait until all 80 patients have received Reolysin for at least 12 weeks to ensure that there is a treatment effect. The effect will become more evident after the PFS curves have had a chance to separate. This strategy gives the drug the best chance of success.
TLSR: What kind of response do you want to see for this company to meet your expectations?
PF: Historically, the median PFS for a control group is six to eight weeks. I would like to see at least 50% more—a PFS of 12 weeks. Then there would be confidence that on the primary endpoint, which is overall survival (OS), it has a good chance of meeting expectations in the second phase of the trial.
TLSR: What would be your ideal OS?
PF: It is relative to the control group. If the control group is in the typical five- to seven-month survival timeframe, I would like to see at least eight to nine months in the Reolysin group. But the results are relative to the control group, so they may vary.
TLSR: Do you see Reolysin as a first-line therapy or will it be used as a combination therapy with other first-line therapies, such as platinum or other chemotherapy?
PF: That is an interesting question with regard to head and neck cancers. Certain types of head and neck cancers respond very well to surgery. Once you get into chemotherapy, there is potential for Reolysin to be used in a first-line combination, but much more testing would be required.
TLSR: Are you still at a $10 target price and Speculative Buy on Oncolytics Biotech?
PF: Yes.
TLSR: Another company?
PF: Paladin Labs Inc. (PLB:TSX) is a Canadian-based specialty pharma company. It has a very solid management team. It has grown organically as well as through product and company acquisitions. The majority of its business is in Canada, but it has expanded internationally and notably, most recently, into South Africa. I nickname it the "Bank of Paladin" because it has completed a series of deals where it has used cash (and it currently has more than $250M in cash) to provide loans to other companies. It gets a great return on its investments. It assumed the debt of ProStrakan, and when ProStrakan was acquired by Kyowa Hakko Kirin Co. Ltd., the debt was repaid plus a fee. Paladin earned more than $8M in about five months on that investment. Just recently, it has agreed to loan up to $8M to Nuvo Research (NRI:TSX), another Canadian-based company. Paladin manages all aspects of its business very well.
TLSR: Paladin's loan to Nuvo Research includes a license for Nuvo's local anesthetic patch Synera (lidocaine + tetracaine). It had done a lot of due diligence before making this loan. Do you consider the "Bank of Paladin" to be a serious part of its business model?
PF: No, but I point it out because Paladin is not only looking for products and companies that will help expand its business, but also uses its cash in an opportunistic, low-risk manner to get a very attractive return. Other companies do not necessarily do that.
TLSR: Speaking of low risk, Paladin is consistently one of the best market performers. It has quadrupled its share price over the last five years, unlike many other specialty pharmas and biotechs. The stock has a beta of 0.36. It has a conservative business model. You rate it a Buy, but I'm curious about why you think it is an above-average risk company?
PF: My above-average risk qualifier is against the broad spectrum of companies, not just healthcare. Within healthcare, I think Paladin is relatively low risk.
TLSR: The company made a significant acquisition recently. Will that be accretive and when?
PF: The most recent major event on the acquisition side was the closing of the Litha Healthcare Group Ltd. (LHG:SJ) purchase. Litha is a South African company. That deal closed on July 2. I believe the impact of the Litha deal is not fully reflected in analysts' consensus yet; however, it is in my numbers. Paladin indicated that if the deal had been done in 2011, it would have added $25M in earnings before interest, taxes, depreciation and amortization (EBITDA) and Paladin would have recorded about 44% of that, which would have been just over $11M. When Paladin starts to report on a consolidated basis, starting in Q3/12, we'll see a significant bump up in revenues and EBITDA. I believe investors will continue to be very satisfied with year-over-year growth as a result of this acquisition and other products that Paladin is introducing.
TLSR: Will this acquisition represent an opportunity to improve scale and margin?
PF: The margins on the Litha business are not as good as on the Paladin business. Litha has a large vaccine business in South Africa. Although Litha is taking steps to improve its margins, I don't think that business will be as profitable as Paladin's, partly because of the nature of its product portfolio. But it will be an accretive acquisition that will be beneficial for Paladin.
TLSR: Your target price on Paladin is $50. That does not represent a lot of upside.
PF: No. But over the last few weeks the stock has been improving steadily, which is great. Maybe people are starting to realize the potential upside with Litha. When Paladin reports next quarter, we'll take another look at our numbers and see if we fully reflected the additional value that could be created. We had to make a number of assumptions on the Litha deal, but once we get the Q3/12 numbers, expected near the end of the year, we will be in a better position to see just how much value will be created.
TLSR: You follow QLT Inc. (QLTI:NASDAQ), rated a Speculative Buy with a target of $10, correct?
PF: Correct.
TLSR: What is your investment theory here?
PF: QLT, as I'm sure you know, just had a shakeup on its board, with a new board elected. The stock reacted favorably to that, but we still see the company as undervalued based on its cash position. It has more than $4/share in cash. It also has about $1.80/share in contingent consideration from its 2009 sale of Eligard (leuprolide acetate, for the treatment of advanced prostate cancer) to Tolmar Holding Inc. Right there, we have almost $6/share worth of value. It also sells Visudyne (verteporfin) to treat wet age-related macular degeneration (AMD). Although we see Visudyne's sales slowly declining, it still earns about $30–35M annually from sales, royalties and manufacturing revenues, which is more than $0.50/share. When you take those three things into consideration, we're looking at around $6.50 in value, and the stock is now trading at $7.80–8. I believe there is little value being given to the potential of the pipeline.
The new board at QLT recently announced it will focus on its synthetic retinoid program for Leber congenital amaurosis (LCA) and retinitis pigmentosa (RP). It intends to divest its punctal plug program for glaucoma. The board also cut almost 70% of its workforce, including the CEO and CFO, and it intends to return $100M in capital to shareholders. It appears the new board is focusing on cost control. We believe significant value could be created in the retinoid program. It is expected to be in phase 3 trials in 2013. Given where the stock is trading, we think there is enough return to our price target to warrant the Buy rating, although we also believe that the risk profile of an investment is slightly increased with the latest board announcement, as the product pipeline will become less diverse.
TLSR: Spinning out the punctal plug system for glaucoma seems like an outstanding way to monetize less valuable intellectual property and allow QLT breathing room to develop its more valuable synthetic retinoid product. With regard to the synthetic retinoid (QLT091001) for treatment of RP and LCA, I noted that headaches occurred in 94% of the patients, which are children. How will the regulators view that?
PF: Headache was reported in 94% of patients. This was observed within the seven-day treatment period, but the efficacy was looked at over months. When physicians and patients look at this disease, they must consider that while a patient may have a headache rated mild to moderate, that child may also have recovered meaningful parts of his or her vision. I believe the benefit-to-risk profile is in the patient's favor. This is a terrible disease, and there are no real treatment options on the market at this point in time. If a drug can help a child see better, it's worth trying. The investigators involved in the study did not see headache as a deterrent to use. Patients were willing to undergo retreatment despite the side effects, which speaks to the tolerability.
TLSR: Philippa, I enjoyed speaking with you very much. Best wishes.
PF: Thank you very much for your time.
Philippa Flint has more than 11 years of experience in drug development and regulatory affairs at big pharma, combined with 10 years of capital markets experience as an equity research analyst. Prior to working at Bloom Burton & Co., Flint was an equity analyst at RBC Dominion Securities, providing research coverage of small- to mid-cap biotech/pharma companies. She has been consistently ranked the top earnings estimator in Canada in the healthcare sector by StarMine, including over the period from 2004–2008 and in 2011. Prior to this, Flint was the vice president for medical affairs at AstraZeneca Canada, managing a department of 150 people working on more than 100 clinical trials. She led the merger of Astra and Zeneca in Canada, prior to which she was the vice president for regulatory affairs and corporate project management at Astra Canada. Flint holds a master's of science degree and a master's degree in business administration.
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DISCLOSURE:
1) George S. Mack of The Life Sciences Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Life Sciences Report: None. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) Philippa Flint: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.

( Companies Mentioned: AEZS:NASDAQ,
LHG:SJ,
NRI:TSX,
ONCY:NASDAQ; ONC:TSX,
PLB:TSX,
QLTI:NASDAQ,
)

Biotech Stock Trading: The "ASCO Effect" Can Double Your Money in Days

By William Palaton III
www.moneymorning.com

At the beginning of May 2011, OXiGENE Inc. (Nasdaq: OXGN) was a relatively unremarkable biotech stock. It was trading at less than $2 a share.

You might even say that OXiGENE was deeply troubled.

The company faced questions about management turnover and its cash position. Its investors were worried about its cancer-drug pipeline.

In fact, the stock was one of the biotech sector's worst performers in 2010, and the company had to endure the ignominy of a reverse stock split in February 2011.

Then came the "ASCO Effect."

Over a nine-trading-day stretch that started the first day of May, OXiGENE shares soared 218% - on a massive spike in volume. If you include the intraday high, the stock gained as much as 245%.

This isn't an isolated case.

Each June, the American Society of Clinical Oncology (ASCO) hosts its annual meeting - an event that's attended by 30,000 people and the scene of 4,000 presentations.

Roughly two months beforehand, ASCO posts the titles of the research abstracts that will be the basis of those presentations.

Traders search those abstracts to identify the sponsoring companies - many of them development-stage oncology biotechs whose low share prices make them fodder for some fast action.

That's exactly what happened with OXiGENE at this time last year: Traders scoured ASCO's Website and found two abstracts dealing with the company's cancer drug Zybrestat.

Not long afterwards the stock zoomed.

Biotech Stocks and the ASCO Game Plan

This year's ASCO annual meeting was scheduled for June 1-5 in Chicago.
The ASCO Effect move often starts in April. But there's almost always an additional stretch in May during which oncology stocks experience near-vertical spikes in very short periods.

This second leg of the ASCO Effect usually involves a large handful of stocks. And it happens every year. For instance:

• In May 2010, Delcath Systems Inc. (Nasdaq: DCTH), a development-stage biotech specializing in liver cancer, saw its shares rise 30% in 21 days. That was the culmination of a longer-term (and wildly whipsawing) surge that started in mid-March and sent the shares up as much as 164%.
• In 2009, shares of Dendreon Corp. (Nasdaq: DNDN) went from $6.30 a share in early April to $25.74 in early June - a gain of 309%. If you go back even further, you'll see that Dendreon's stock went from $2.60 in early March to $25.74 at the start of June - a near 10-bagger.
• Starting in early May 2008 (and reaching its peak that June 6), Celldex Therapeutics Inc. (Nasdaq: CLDX), gained exactly 50% in slightly less than 30 days. That was the final burst of a 2½-month move that saw the shares gain 142%.

But here's the thing: Although this can be tremendous fun while it lasts, the "ASCO Effect" is more of a trading opportunity than an investment. The gains generally don't stick, meaning you need to get out ahead of the investor exodus.

OXiGENE shares, which traded as high as $6.07 during its surge last May, dropped all the way down to 92 cents each by the following October. Today, the company trades for 95 cents.

[Editor's Note: In Bill's latest research report he has identified three oncology stocks that could benefit from the "ASCO Effect." But that's only one of the ways investors can profit from them.

Bill intentionally picked companies with long-term growth potential. That gives shareholders a shot at the profits being reaped from the current surge in multi-billion-dollar biotech buyouts.

To get Bill's report - "The Biotech Buyout Binge: Why These Three Stocks Could Double Your Money in the Next Three Months" - just click here. ]

News and Related Story Links:

• American Society of Clinical Oncology (ASCO) Meeting 2012: Official Website.

Source: Biotech Stock Trading: The "ASCO Effect" Can Double Your Money in Days:

WellPoint (NYSE: WLP) Rides the Obamacare Profit Wave Even Higher

by Diane Alter for Money Morning

Merger Monday lived up to its moniker today with news that WellPoint Inc. (NYSE: WLP), one of the largest U.S. health insurers, inked a deal to acquire Amerigroup Corp (NYSE: AGP).

The $4.9 billion deal would make the Indianapolis-based company the top private manager of Medicaid benefits.

The strategic move underscores WellPoint's bid to shore up its Medicaid business following the recent Supreme Court decision upholding Obamacare. The combined company will have a Medicaid business presence in 19 states, the largest in the nation.

The transaction is expected to close in early 2013. Under the terms of the all-cash deal, WellPoint will pay a lofty $92 a share for all outstanding shares of Amerigroup, a nearly 43% premium to the company's closing price prior to announcement.

WellPoint CEO Angela F. Braly said in a statement, "We believe that this combination will create an industry in the government sector serving Medicaid and Medicare enrollees. This is an opportunity to capitalize on the strengths of both companies to better serve our members and position our companies for future growth as the health insurance industry changes."

WellPoint has been on a buying spree of late. In May, the company purchased contact lens retailer 1-800-Contacts, and last year it picked up CareMore, a provider of managed care for the elderly.

Obamacare and Medicaid

Under the Obama administration healthcare overhaul, Medicaid, the public program for the poor, will be extensively expanded.

By 2014, Obamacare will extend Medicaid to all those with incomes of up to 138% of the federal poverty level.

The implications from this development are massive. A report from the Urban Institute reveals some 22 million people without insurance at present, roughly half of America's uninsured, could qualify for Medicaid.

Republicans vehemently vow to repeal Obamacare before it ever takes effect, and the topic is a heated and prominent issue in Election 2012. Twenty-six states oppose the Medicaid expansion, as well as the individual mandate that requires everyone to buy health insurance or pay a penalty (tax), and adamantly maintain they will not implement these portions of Obamacare.

Congress ruled that the states don't have to go along with the Medicaid expansion. Currently, Washington covers 50%-83% of each state's Medicaid program, and states that opt out of expanding coverage can keep the money they have already.

Texas Gov. Rick Perry wrote in a letter today to U.S. Health and Human Services Secretary Kathleen Sebelius, "If anyone was in doubt, we in Texas have no intention to implement so-called state exchanges or to expand Medicaid under Obamacare. I will not be party to socializing health care and bankrupting my state in direct contradiction to our Constitution and our founding principles of limited government."

WellPoint's Braly said in a conference call Monday that the law's expansion of Medicaid, set to begin in 2014, "is only one element here."

She added, "We expect organic growth in the Medicaid segment. We did this deal no matter what and decided to do it no matter what the Supreme Court decided."

Looks like all's well at WellPoint either way.

Source: WellPoint (NYSE: WLP) Rides the Obamacare Profit Wave Even Higher:

Follow Venture Capital to Big Gains in Biotech: Peter Johann

By George S. Mack of The Life Sciences Report  (7/5/12)

Peter Johann is a managing general partner at NGN Capital, a venture capital firm that invests in private and public biotech and medical device companies. In this exclusive interview with The Life Sciences Report, Johann discusses pharmaceutical and medical device companies in his portfolio, pointing out opportunities for venture capitalists that are also potential boons for private investors.

www.thelifesciencesreport.com

The Life Sciences Report: NGN is a venture capital firm, but I note that you also do private investment in public equities (PIPEs). Could you briefly describe how PIPEs are structured? When you create a PIPE, what do you get in return?
Peter Johann: Starting with the second question, usually we acquire common shares plus warrants. Sometimes there are no warrants, but usually a PIPE returns shares plus anything from a quarter of a warrant up to and in some cases more than 50% in warrants, which are exercisable within a certain time period at a price fixed in advance. In principle, when we started our first fund in 2004, we determined that up to 20% of our investments could be PIPEs. We saw a lot of opportunity in undervalued companies. The private valuations were usually higher than the public ones.
TLSR: I saw that Micromet Inc. (MITI:NASDAQ) was one of your PIPEs. Let me congratulate you on the premium valuation you got when Amgen Inc. (AMGN:NASDAQ) took Micromet out for $1.16 billion.
PJ: Thank you. We invested about six months after Micromet merged with CancerVax Corp. The share price was lower than when Micromet was privately held. We knew the company before the merger and we had done our due diligence. When the opportunity came we negotiated a PIPE deal and updated our due diligence within a short period of time.
We also did a PIPE with Resverlogix Corp. (RVX:TSX). We came across Resverlogix while performing due diligence on another company and found Resverlogix' product RVX-208 was far more advanced. We followed the company for some time, started talking and when it raised money, we went in, did due diligence and structured a PIPE.
TLSR: The PIPE appears to be a way for activist investors to get involved with a company. Perhaps the company is undervalued, but it needs capital to realize its improved valuation. Is that the case?
PJ: Yes. PIPEs are a way to raise cash to move companies to the next value inflection point, as private rounds do in nonpublic companies. When we do PIPEs we always look at the shareholding structure and who else joins in such a round.
TLSR: What type of exit strategy do you prefer for your portfolio companies—initial public offering (IPO), acquisition or something else?
PJ: An IPO is a way to access capital that is unavailable to a private company, because large institutional investors can put money in. That is why Micromet did a reverse merger with a U.S. company, and then went to the U.S. capital markets. Without this access, Micromet might not have been as valuable as it was at the end. If it had stayed in Europe, access to capital would have been limited.
On the other hand, even if a company goes public and raises the money it needs to get to its next goal, it will still need a value inflection point, where a pharma or medical device company gets interested enough to buy the company. The IPO is the step in between.

"Pharma and device companies want to share risk with investors by telling companies they can get more cash, but only if certain milestones are met."

Obviously, an acquisition is the most straightforward exit. Several models have come up in the past. One is a straight acquisition, which happened with Micromet. It was an all-cash deal. But others may have milestone payments on certain events, which may or may not come. A couple of deals like that have taken place recently, in which up to 50%—or sometimes more—of the total value of a company was paid and the rest was delivered in deferred installments upon reaching clinical or commercial milestones. This is part of the risk-sharing concept, or one could say acquirers being risk averse. With uncertainty about regulatory processes, such structures reduce risk exposure. But they put a burden on venture capital investors who have a limited lifetime on their funds, as milestones might occur after the fund terms expire and they may be cut off from the upside.
TLSR: I've noticed that companies are being acquired and original investors are receiving milestone payments later. Has it been that way all along, or am I just starting to notice it?
PJ: These types of deals are happening more often. Outright acquisitions were the name of the game until four or five years ago. Meanwhile, pharma and device companies became more risk-averse. Now they want to share risk with investors by telling companies they can get more cash, but only if certain milestones are met. I would not say this is the standard now, but in many cases you find this acquisition structure. It largely depends on the kind of milestones set forth, and the timeframe expected to reach the milestones, as well as the financial situation the small company is in.
TLSR: Do you believe the IPO will return as the normal exit strategy for biotechs, or has the duration of drug development changed the exit model for startups? Is an IPO even rational for a startup or a biotech with a product in phase 1 or early phase 2?
PJ: In those instances, I would say an IPO exit is unlikely. Verastem Inc. (VSTM:NASDAQ) is an example of a company with an early-stage product that was a good story. We did an IPO with Horizon Pharmaceuticals Inc. (HZNP:NASDAQ), which was the product of a merger between Horizon Therapeutics Inc. and Nitec Pharma AG, a company we had invested in before. The combined company then had two late-stage assets, Duexis and Lodotra (Rayos in the U.S.). It got approval from the U.S. Food and Drug Administration (FDA) for Duexis, a product to treat signs and symptoms of rheumatoid arthritis (RA) and osteoarthritis (OA), and for Lodotra, which is currently marketed in Europe for the treatment of moderate to severe active RA accompanied by morning stiffness. What you find is that institutional investors want derisked assets when they invest in an IPO, which they found in the case of Horizon. The tendency is toward later-stage, derisked assets before a company seeking investment can get access to capital in an IPO at a reasonable valuation.
TLSR: As a venture capitalist, do you put yourself in the same position as a big pharma? Do you want to see a company derisked to a certain degree before you invest in it?

"Institutional investors want derisked assets when they invest in an IPO."

PJ: We have a diversified portfolio. We invest in some early-stage assets—those that are preclinical—when we have good models and can see whether a concept is working. But you still have the risk of drug toxicity and the issue of efficacy in humans, which can only be seen down the line. Therefore such companies represent a smaller piece in our portfolio and are only companies with a real breakthrough potential. Preferably we invest in companies that already have products with demonstrated efficacy. In oncology, as with Micromet, we saw a cohort of patients that had responses while the product was still in dose-escalation. When we invested in Nitec Pharma AG, its RA product Lodotra was already in the approval process, so it was derisked and late-stage. We prefer that kind of asset because we do not have long development times. If you invest preclinically, you could be talking up to 10 years before you see a return, depending on the data you, as a strategic acquirer, want to see. That is far too long for many venture capital companies and their limited partners.
TLSR: Horizon has real revenue visibility and derisked products that have been on the market for a long time.
PJ: Correct.
TLSR: And then you have the investment in Resverlogix, which is more speculative but does have clinical-stage programs. Are you diversifying that way?
PJ: Yes. We saw the marker data in RVX-208 from a phase 1 study as a basis when we invested. We saw the ASSERT trial later, which unfortunately had a p-value of 0.06—which is close to statistical significance but just missed it: 0.05 would be statistically significant. It was just the primary endpoint on the ApoA-1 (apolipoprotein A-1) increase that missed; HDL increase was statistically significant. The data showed the concept was working, and we'll see more studies and more data that will, hopefully, confirm the hypothesis soon. With regard to Resverlogix we said, "OK, it is higher risk, but it will have very high rewards when it hits." From a venture-capital portfolio perspective, you need a balance of high-risk, high-return and lower risk with median return.
TLSR: What are you looking for in pharma and medical device companies?
PJ: We are about 50% in pharma, and have about 50% of our portfolio in medical devices, diagnostics and, to a lesser extent, in services. There are some highly attractive companies in our portfolio that could consider an IPO route to build growth, or could take the merger-and-acquisition (M&A) route. However, acquirers seek companies at a certain stage. For medical devices, the feedback we get is that strategics want CE-mark safety plus a certain level of revenue in Europe, and/or FDA approval in the U.S. [Editor's note: CE refers to Conformité Européenne, which attests that a product has met the European Union's health criteria.] An acquisition at a preapproval stage in devices or diagnostics is very rare and mainly found with breakthrough technologies. Pharma also is looking for breaktrough technologies early, or for products with proof of concept in clinic.

"From a venture-capital portfolio perspective, you need a balance of high-risk, high-return and lower risk with median return."

In pharma, you want a platform that people think is promising. Thus you have the Sirna Therapeutics acquisition by Merck & Co. Inc. (MRK:NYSE). The antisense field looked very promising, and Merck made that move. Also, Roche Holding AG (RHHBY:OTCPK) did a big deal with Alnylam Pharmaceuticals Inc. The deals reflect the assumption that you can develop good products on antisense/RNA interference platforms. On the other hand, when a biotech company has a new platform potential, pharma partners want to see clinical validation—especially when there are new targets. Once a company has demonstrated clinical proof of the platform and has a pipeline behind, then it is a much more attractive buy, and is of much higher value for an investor.
TLSR: Speaking of antisense drugs, Isis Pharmaceuticals Inc. (ISIS:NASDAQ) has filed Kynamro (mipomersen sodium), designed to reduce LDL cholesterol, for review in both the U.S. and Europe. If it receives approval, would you consider that validation of the platform?
PJ: It would be a validation of the platform in one sense, but it is only one product. There are a couple of others in clinical development that show good data. With the optimization of the technology and delivery—getting antisense drugs into the cells—we have the potential for more products coming out of this platform.
TLSR: We have mentioned several public companies in your portfolio. Can we talk about them more? Which would you like to start with?
PJ: Let's start with Resverlogix. Its RVX-208, which treats atherosclerosis, is in two clinical phase 2b studies. We look forward to seeing proof of concept—reducing plaque volume—in clinic. The company started out as a cardiovascular company, with additional programs in inflammatory disease. Atherosclerosis is 50% inflammation. The lead compound was developed in the cardiovascular space, and that is why we invested. As recently announced, Resverlogix has a whole new basis with its epigenetic platform technology, which modulates protein production, and RVX- 208 is the lead compound on this platform. New products expanding out of the cardiovascular field into many different fields, including oncology, can be expected from that platform. That adds additional value to the company and a broader basis. We firmly believe RVX-208 is a first-in-class small molecule for treatment of atherosclerosis. It has a completely different function than cholesteryl ester transfer protein (CETP) inhibitors.
TLSR: RVX-208 is an inducer of apolipoprotein A-1 (ApoA-1). We are used to looking at protein inhibitors in drug development. Why do you think it has taken so long to look for agonists or inducers?
PJ: The screening field has been based on inhibiting a process. If you induce a process, you need to understand what you are inducing and what the potential side effects could be. That is a relatively new paradigm and has taken a long time to emerge. Now that we understand both the genome and gene function better, and also have a better understanding of how you can modulate genes, it is easier to start in this field. The whole epigenetic field is just emerging, and we are just seeing the first big deals from it. It is a whole new way to develop new drugs.
TLSR: How long do you think it will take to find out if RVX-208 might actually prevent exfoliation of vulnerable plaques?
PJ: We will have the first data in Q1/13 from the ASSURE trial. Then we will see to what extent we can cause plaque to regress. If there is an indication after six months that it is reducing plaque, we can look at outcomes in phase 3 studies.
TLSR: It is hard to make direct observations of the growth of vulnerable plaque, except on autopsy perhaps. It will have to be a data- and time-driven endpoint. It is going to take a long time to figure out if RVX-208 actually prohibits the sudden heart attacks that kill people who appeared perfectly healthy until the day they died.
PJ: You can identify risk now with new intravascular ultrasound (IVUS) imaging. With the new systems, you can also identify the composition of plaques. A physician can then determine whether the plaque is vulnerable or not. It will take a while for the drug to work because you need to induce ApoA-1. It will take a couple of days to start the gene up-regulation, produce the protein and then reverse cholesterol transport. RVX-208 is not an acute treatment, but chronic and prophylactic.
TLSR: Perhaps it won't be this first-generation drug RVX-208, but do you imagine this type of technology could ultimately render statins obsolete?
PJ: I wouldn't think so. We think the treatment will be used in combination with statins. A physician would reduce low-density lipoprotein (LDL) with a statin, and on top of that build up high-density lipoprotein (HDL). LDL alone is not a decisive factor in cardiovascular events. They are also a function of HDL—functional HDL—which we want to elevate. If you have a good ratio of LDL to HDL, you have a combined excellent effect. That is why we do studies of RVX-208 on top of statins.
TLSR: When you first talked about Resverlogix, you mentioned that it started out as a cardiovascular company, but there were obvious synergies with other disease-causing inflammatory processes. How far are these other anti-inflammatory products from the clinic?
PJ: They are preclinical, so I cannot give you an exact timeline. It is a matter of focus for the company, obviously. But they could be developed into clinical compounds within a reasonable time period.
TLSR: And, of course, ApoA-1 is also important in brain health.
PJ: Right. That is worth exploring in Alzheimer's disease, so that could be another opportunity for the company on top of the cardiovascular.
TLSR: Investors aren't giving any valuation to these distant projects yet, but the possibilities are interesting.
PJ: Absolutely. At the moment the key value driver is RVX-208, because you have two events coming up pretty shortly. One is the SUSTAIN trial, reading out in Q3/12, and then, obviously very important, the ASSURE trial, with intravascular ultrasound measuring changes in atheroma volume. If we see plaque regression there, we can easily deduce that treatment results in fewer cardiovascular events. You would have a development candidate for approval studies.
TLSR: Can the IVUS examination of these plaques differentiate between wall thickenings and actual vulnerable plaque formation below the endothelial layer of the vessel?
PJ: Yes. With the modern intravascular ultrasounds systems, physicians can view imaging that shows composition and whether a deposit is calcified already, or whether it is more liquid. When it is more liquid there is a higher risk. I doubt whether you can see this with computed tomography (CT) scans.
TLSR: Can you talk about Horizon?
PJ: We were previously invested in Horizon's merger partner, Nitec Pharma AG, along with some other venture capital firms. Its product, Lodotra (delayed-release formulation of low-dose prednisone), is already approved in Europe. It has launched in about 17 countries, including Israel. It has a marketing partner in Europe, Mundipharma AG. In the U.S. it is pending approval, and the Prescription Drug User Fee Act (PDUFA) date is set for July 26, 2012. We are looking forward to that. It will be marketed under the brand name Rayos in the U.S.
The other compound, Duexis (ibuprofen and famotidine [Pepcid]), which came from the Horizon side, is a single tablet for treatment of rheumatoid arthritis and osteoarthritis that also decreases the risks of gastrointestinal (GI) ulcers. One might ask, why not take two tablets? Feedback suggests that patients get tired of taking too many tablets and might forget about the protective part. Patient compliance is very important to the physician, therefore we think the combination tablet is a real benefit for the patient and the healthcare system.
TLSR: Horizon stock has been on fire since about June 12, when I saw the inflection point on the chart. It doesn't appear to be market-related. It looks like a genuine high-relative-strength stock. Are investors craving lower-risk opportunities in a nonblockbuster product category? Are they looking for more revenue visibility?
PJ: After the Q1/12 report came out, which announced that Duexis had been launched and was being prescribed, people got more confident that it is being sold. In addition, Horizon announced an increase to its sales force and did a copromotion deal with Mallinckrodt on Duexis in the U.S., as well as a licensing deal with Grunenthal in Latin America, both validating the product. Investors look favorably at these growth stories and credible management behind them.
TLSR: The company is starting to develop revenue, but is cash-burn going to be a problem?
PJ: Horizon was successful in raising money in an IPO. It raised an additional $50 million (M) in a private placement and got a $60M senior-secured loan facility. It paid off existing debt and got new debt in. With revenues increasing, I think it is well on track to break even, but we have to see.
TLSR: Peter, are there any other public companies that you wanted to mention?
PJ: There is one in Europe, Santhera Pharmaceuticals (SIX:SANN.SW). It produces Catena (idebenone), which is approved in Canada for a rare disease, Friedreich's ataxia. It is being tested for a rare eye disease, Leber's hereditary optic neuropathy (LHON), and it has been filed and is under regulatory review for marketing approval in Europe. The decision by Europe's Committee for Medicinal Products for Human Use was expected in H2/12. Catena is in phase 3 trials for treatment of Duchenne muscular dystrophy, and we have to wait for the data as the study is still recruiting. The company also has exploratory studies running in MELAS (mitochondrial myopathy, encephalopathy, lactic acidosis and stroke) and
PPMS (primary progressive multiple sclerosis). If the company gets approval in LHON in Europe and the Duchenne trial proves successful, we could expect a significant upside for Santhera.
TLSR: Peter, I've really enjoyed talking with you. Thank you.
PJ: Thank you. Any time.

Peter Johann is a managing general partner of NGN Capital. He joined NGN after leaving Boehringer Ingelheim, where he was the division head of corporate development. Dr. Johann has established a worldwide network in the biotech and pharmaceutical industry. His responsibilities at Boehringer Ingelheim included strategic planning, strategic projects, mergers and acquisitions, business development and licensing. He identified and evaluated several licensing, M&A and copromotion deals. Prior to this Dr. Johann served at Hoffmann-La Roche as global business leader, where he led global business teams and was responsible for marketing oncology products, as well as the evaluation of pipeline products from internal and external sources. Dr. Johann joined Roche from Boehringer Mannheim, where he was head of business development and marketing for molecular medicine. Besides marketing activities he was involved in setting up and managing joint venture companies as member of the supervisory board. He was also responsible for licensing activities in this field. Dr. Johann held marketing, sales and business development responsibilities at Boehringer Mannheim Biochemicals, among others, for collaborations in the field of biopharmaceuticals. He has additional experience in business development and marketing of pharmaceutical products with Kaneka Corp. in Japan, and with Röhm in Germany in the field of industrial enzymes.


Dr. Johann obtained his doctorate from the Technical University Munich. He currently serves on the board of directors of Resverlogix Corp., Noxxon Pharma AG, Vivaldi Biosciences Inc. and Exosome Diagnostics Inc. He previously served on the board of directors of Micromet Inc. (acquired by Amgen Inc.), Horizon Pharma Inc., Jerini AG (acquired by Shire Pharmaceuticals) and NaniRx Therapeutics, and as an observer on the board of Santhera Pharmaceuticals AG and Cerapedics Inc.

Want to read more exclusive Life Sciences Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.


DISCLOSURE:
1) George S. Mack of The Life Sciences Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: Isis Pharmaceuticals.
2) The following companies mentioned in the interview are sponsors of The Life Sciences Report: Resverlogix Corp. and Merck & Co. Inc. Merck & Co. Inc. is not affiliated with Streetwise Reports. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) Dr. Peter Johann: I personally and/or my family own shares of the following companies mentioned in this interview: Resverlogix Corp. and Horizon Pharma Inc. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.

( Companies Mentioned: AMGN:NASDAQ, HZNP:NASDAQ, ISIS:NASDAQ,
MRK:NYSE, MITI:NASDAQ, RVX:TSX, RHHBY:OTCPK, SIX:SANN.SW, VSTM:NASDAQ)

Source: Follow Venture Capital to Big Gains in Biotech: Peter Johann

Penny Stock Tech Investing: Avoid Pitfalls and Position for Profits

June 22, 2012
by Guest Editorial

www.moneymorning.com

Penny-stock traders are like the Rodney Dangerfield's of the investment world - they get no respect from their bigger brethren. But that doesn't mean they should be ignored. Fact is, while penny stock investing can be risky, it can also be extremely lucrative. Some of the most successful investors in the world became rich buying stocks for pennies on the dollar and selling for $10 or $20 a share.

The key to success is to fully understand all those risks...avoid them at all costs... and then make the right moves so you can safely realize the big profits. Let me explain...

Penny Stock Basics

So-called "pennies" get their name from their low price. They typically trade for less than $5 a share. (And many trade for true pennies, with share prices well under a dollar.) The SEC generally defines them as securities from small companies, most of which trade on the Over-The-Counter-Bulletin Board (OTCBB) and Pink Sheets, LLC. Both have minimal listing requirements. The fact that penny stocks aren't regulated (especially on the Pink Sheets) can be nerve-racking to some.

But it's overly cautious to think of penny stock trading as the Wild Wild West of the financial world. Keep in mind that fraudulent misrepresentation of financials is a Federal offence no matter where a company's shares are listed. Nevertheless, penny stocks have much fewer shareholders than a typical SEC-regulated stock.

The good news for you is that this lack of liquidity makes it much easier for the share price to spike with a major shift in trading. For example, a gain of just six cents for a 30-cent stock means a 20% jump in valuation, whereas a 6-cent gain for any stock trading on the New York Stock Exchange wouldn't turn many heads.

Bottom line: While penny stocks are very volatile in the near term... (they can plunge just as fast and they can skyrocket)... it's the very same volatility that gives them such a hellacious upside -and makes them one of the best wealth-creating categories of stocks you'll find anywhere.

How To Tell The Genuine Article From The Imposters

Penny stocks are plentiful - about 6,000 of them are available today. Trying to sort through all of them can be daunting. That's why I created three "buckets" to help organize and categorize them.

Bucket 1: "Penny Diamonds" Micro-Cap Gems With High Growth Potential

If you're looking for a tiny, virtually unheard of company with a new technology, product, service or drug that's poised for a big breakthrough, the OTCBB or the Pink Sheets is the place to start. As I mentioned, companies that are involved in this kind of over-the-counter trading fall just outside of the many regulations that restrict the activities of the major stock exchanges. That means they don't adhere to many of the time-consuming accounting and finance regulations of the SEC.

But to make traders more comfortable, Pink Sheets LLC recently created a new classification system to help investors assess the legitimacy of the companies in their roster. The highest is called "PremierOX." Companies under this classification must sell for at least $1 a share, have at least 100 shareholders with a minimum of 100 shares each... AND meet the requirements of all the major exchanges. The second level is called PrimeOX. There is no minimum share price here but companies must have at least 50 shareholders with a minimum of 100 shares to gain entry. There are other classifications - including the legitimate OTCQX for international companies. The complete hierarchy can be found at the Pink Sheets Web site.


But generally speaking when looking for those "Penny Diamonds" you should stick to the top two tiers. Of course, finding the "next big thing" is not going to be easy. It won't just pop out and announce itself to you. That's why research is imperative. Do your homework. Here are some rules of thumb:

• Always review the company profile on Pink Sheets and the company's own website.

• Always request information directly from the company you're interested in. Whether by phone or e-mail, get in touch with a representative of the business and request any information they can send you - whether it is about their finances, their products or, if overseas - the political, economic and social situations in their countries. Risk assessments and future opportunities - anything you need to know to be sure of a company's potential - are also important.

• Do not even consider a company that isn't forthcoming with their information. Be wary of companies that will not consider treating the interests of their minority shareholders as their own.

• If the company you're researching is outside the U.S., you should also research the business laws inside the company's home country.

Once your homework is done, it's time to look for a catalyst. A catalyst can be any type of event, date, or unique situation that could create a spark that'll send your share price soaring. Here are two big catalysts to look for:


Ready For Market:

Many penny stock companies (particularly health related biotech's or innovative technology companies) spend years researching and developing their products. This may include lengthy and rigorous testing. Pharmaceutical biotech products can spend years in trials and tests.

The catalyst occurs when the company is ready to go to market. Look for the end of trial dates... or actual roll-out dates. That means the company is ready to manufacture and sell its products and services. For biotech's, it also could mean a promising drug is nearing FDA approval.

Buyout Candidates:

Many small companies are prime buy-out candidates. Typically these companies have a market niche, a technology, a promising drug, product (even patents) that a larger competitor desires. When one company buys another, they agree on a price. Many times, that price is much higher than with the penny stock's company's price is currently trading. This gives those shareholders an instant gain.

My advice is to follow Merger & Acquisition (M&A) trends to see what sectors are hot. For example, record-breaking M&A activity is occurring in the pharmaceutical biotech sector right now.

That's because big drug makers risk losing $170 billion in annual sales when patents expire on their most lucrative drugs. So they're battling back, embarking on a multi-billion-dollar shopping spree, buying up small players who can replenish their pipelines.

Imagine if you buy a sensational penny stock biotech for under a dollar and the company gets bought up by Big Pharma. It's practically guaranteed that you'll see sizeable gains.

Bucket 2: Fallen Angels

Not all penny stocks are unknown companies traded over the counter. There are also companies that already have their fair share of recognition... perhaps even trading on the major exchanges... but whose stock price is under $5.

Some of these companies I call Fallen Angel's. A Fallen Angel is a high quality company whose stock price has declined due to market forces out of their control. For example, a company may lose market share due to a business and economic cycles in their particular industry... a recession... or even a market crash. Some of these companies have very strong fundamentals, still trade on the major exchanges, and offer very substantial upside.

In short, a Fallen Angel gives you a tremendous value play, selling at significant discount to their intrinsic value and represent terrific bargains. At the end of this report, I'll tell you one of my current favorite Fallen Angels.

Bucket 3: Shell Companies

Pink sheets are often sprinkled with "shell" companies that exist on paper but have no assets. They simply exist for one purpose: To inflate their stock price and cash out. These are the penny stocks you need to avoid at all costs. How do you recognize and avoid these types of stocks?

I provide details about penny stock traps and scams below... but keep this in mind: Many of these companies resort to tactics such as high pressure telephone calls, email marketing schemes and phony promotion ploys that try to convince you their stock is about to go through the roof. The truth is, most of these marketing schemes are run by professional promoters who make a good living spreading rumors about penny stocks Often these illegitimate companies could see their stock ramp up... then instantaneously drop 50, 60, even 100%.

Pump And Dump

The most common type of penny stock scheme is called the "Pump and Dump." This scheme has been an investor pitfall to avoid the penny stock world for a long time. A classic "Pump and Dump," works like this: A holder of a big block of penny stock shares orchestrates a "whisper campaign" to pump up a penny stock company and its product. Traders rush in, driving the price skyward, enabling the perpetrator to "dump" his shares at a big profit. Those left "holding the bag" lose big time.

Here are some signs to watch out for:

• Penny stocks that have "guaranteed performance." ( There's no such thing)
• Penny stocks that have extremely low volume. (It's impossible to tell where this stock is heading, making it even more risky than most)
• Penny stocks that you hear about from friends, at the office, over the phone or a social venues (These are typically stocks being pushed by talented marketers)

Tips On Investing In Penny Stocks Safely

You can avoid the common penny stock pitfalls pretty easily. Here are some safety tips. First, remove the dollar signs in front of your eyes and replace them with company research. Start by looking for companies with financial track records, an important screen that eliminates 95% of the "shell" penny stock companies out there. Be a skeptic.

In other words, dig deep to make sure the company is sound and their business make sense.

Once you decide on a company, you should "know" that company inside out. Know what it does... how it does it... how it makes money... and especially its management. Second, apportion only a small amount of your overall portfolio to penny-stock investing. That means that you can't clutter your mind with a lot of "what if" long-shots - such as, "what if this stock soars...I'd be able to buy a vacation home or retire rich by 49." That kind of financial sobriety sounds boring, but sobriety today means there's no hangover tomorrow. Once you have thoroughly researched your stock of choice and purchased it through your broker or online, be prepared to treat it as a long-term investment.

These stocks are smaller companies that are not constantly watched by analysts and regulators. They can sometimes go days without even a single share changing hands. This will no doubt make some of the nail-biters out there anxious. But most intelligent investors find it liberating to be able to forego the short-term roller-coaster ride and focus on growth potential over the course of a company's natural life.

That doesn't mean ignore your investments altogether. Make sure you keep up with the information coming from the company and any third-party news stories - just like you would with an investment on a traditional exchange. But don't sell just because you don't see a change over a few hours or days.

Finally, don't get greedy. If you realize big gains on a stock at first, you could still end up losing money. You need to understand not only when to get in... but when to get out.

Here's A Great Penny To Get You Started...

You can start building a penny stock portfolio right away. I've chosen a small-cap stock - one that I feel has substantial potential and already trades on a major exchange. Yes, it's been spotted by Wall Street, but its stock is still cheap.

The company is New York-based biotech Delcath Systems (Nasdaq: DCTH), one of my Fallen Angels. Founded in 1988, Delcath makes specialty medical devices. It is developing a proprietary system for chemosaturation. The company's plan is to administer high-dose chemotherapy and other therapeutic agents directly into diseased organs or regions of the body, while controlling the systemic exposure of those agents. This chemotherapy "targeting" lets doctors deliver much stronger doses to the affected area. And it protects the rest of the body from chemotherapy's dangerous side effects. Delcath just reported progress at a recent meeting of the American Society of Clinical Oncology (ASCO).

The company has a solid business plan contained in a new investor presentation you can get by clicking here. At 105 pages, it's thorough to say the least. And it has a brand new catalyst working in our favor: It just announced a second-generation use of its product and filed an amendment with the FDA.

Delcath's stock price is currently under $2 a share. Its stock pulled back a bit because of recent volatility in the market. But unlike many small caps which are riddled with debt, this company is sitting on $31 million in cash. It may be a micro-cap but it offers major profit opportunities. And the stock price has held up well after the company issued $20 million in new shares and warrants to the public, meaning we can get shares at pretty close to rock bottom. I believe it's an excellent choice to get you off to good start in penny stock investing.

I've also recently put together another report report that focuses on some incredibly interesting technology stocks. Several of these, I believe, will change the way we do business for decades to come. To see this full report, just go right here.

Source: Penny Stock Investing: Avoiding Pitfalls and Positioning for Triple-Digit Profits:

Special Report from the ADA: William Plovanic Identifies Companies with Promising Diabetes Solutions, Prospects

By The Life Sciences Report Editors  (6/21/12)

Every year, top researchers and physicians meet at the American Diabetes Association Scientific Sessions. This year, Canaccord Genuity Analyst and Managing Director William Plovanic reported back on promising developments and what they could mean for the companies behind them. In this interview with The Life Sciences Report, he explains why he is so positive on the space in general and about certain companies in particular.

The Life Sciences Report: You recently attended the 72nd Annual Scientific Sessions put on by the American Diabetes Association (ADA) in Philadelphia. What were the major takeaways?

William Plovanic: We attended scientific sessions and spoke with a number of management teams. Overall, we came away with clarity on new product introductions across the three major growth categories: continuous glucose monitoring (CGM), hospital continuous glucose monitoring and insulin pumps. We were also encouraged by management feedback as it related to U.S. Food and Drug Administration (FDA) interaction and projected regulatory timelines for next-generation products.

TLSR: What did you learn about continuous glucose monitoring?

WP: The conference had a significant CGM focus, which is encouraging as we believe the FDA logjam appears ready to break open. The data continues to shine positively on CGM, reinforcing our belief that the current and next-gen technologies will become standard of care. It is still our belief that CGM will be the gold standard for type 1 diabetes.

TLSR: What was new in the hospital CGM space?

WP: In-hospital CGM remains a large market opportunity—we estimate +$1 billion in the U.S. alone. However, getting these products through the FDA continues to be challenging. The FDA needs to set its standards and expectations before U.S. pivotal trials can move forward for devices in this space. Furthermore, given the complexities of measuring glucose in intensive care units (ICUs), we remain cautious as there is little to no prospective data in the intended-use population base.

In a nutshell, most of these products are still "research projects." As a result, companies are targeting the European Union as the first market for commercialization. From our conversations, it appears the players have shifted positions, with OptiScan (private) beginning measured European commercialization, GluMetrics Inc. (private) deep in a large intended-use clinical trial, and DexCom Inc. (DXCM:NASDAQ) ($11.56/Buy) working out the next step with Edwards Lifesciences Corp. (EW:NYSE).

"We were encouraged by management feedback as it related to U.S. Food and Drug Administration interaction and projected regulatory timelines for next-generation products."

DexCom seems to be making progress on approval of its G4 CGM system. Management indicated at the conference that it could be given the nod before year-end 2012, which is ahead of our first half of 2013 estimate. The company could start a pediatric study in the next quarter to facilitate label expansion. Early snippets of G4 data looked positive, with single-digit mean absolute relative differences (MARDs) realized in day two of sensor usage, which is a major improvement from the mid-teens for Dexcom's Seven Plus unit.

Another company, Echo Therapeutics Inc. (ECTE:NASDAQ) ($1.69/Not Rated) is developing the Prelude SkinPrep and Symphony tCGM systems, which together form a transdermal CGM system. The systems are noninvasive and continuously collect data and wirelessly transmit it every minute to a remote monitor. Management plans to target the in-hospital market first. We believe the system is ideally geared more for the ward rather than the ICU or step-down unit. Like most products in the space, we are aware of very little to no prospective data on intended-use patients.


TLSR: What developments did you see in the insulin pump space?


WP: 2012/2013 is set to be a year of new market entrants, with multiple competitors moving toward commercialization and entering the U.S. market. We are excited to see different competitors target specific market segments within the pump market.

We continue to be bullish on Insulet Corp. (PODD:NASDAQ) ($19.80/Buy), as we would not expect the new competitors to impact Insulet's market share or win rate of new pumps. Insulet management provided an update on the current regulatory status of its next-gen insulin pump (Eros), noting it had received only a handful of questions from the FDA. Commentary led us to believe the questions were "drill-downs" into previous questions rather than anything unexpected. Management noted an expectation that answers would be submitted within the next week or two, positioning the company on track for approval in the next quarter or two.

The current agreement with Abbott Laboratories (ABT:NYSE), pairing its glucose test strip with Insulet's pump, expires in March 2013 and Insulet has already entered into a nonexclusive agreement with Animas Corp. (a Johnson & Johnson [JNJ:NYSE] company). We will be watching the outcome of these agreements in 2012, as Insulet will pick the company that will benefit from its huge installed base of high-volume strip customers. On the CGM front, its partnership with DexCom is moving forward. Insulet remains very focused on integrating DexCom's G4 sensor into its OmniPod (think of an OmniPod with a cannula at each end). We believe a product in this configuration would offer Insulet a differentiated product relative to the competition.
Valeritas Inc. (private) was profiling its V-Go, a simple one-day pump for type 2 insulin-dependent patients. It is an evolutionary pairing of the patch pump and insulin pen. The V-Go is a completely mechanical basal-bolus insulin delivery device designed as a disposable, one-day-wear device. V-Go delivers a preset basal rate (0.83, 1.25 or 1.67 units per hour) and on-demand bolus (two units) dosing. Valeritas is positioning the product with a different approach to reimbursement, taking the pharmacy benefit route that current insulin pens use. The company is well funded, with $150 million raised in September 2011.

"The fact that it is an election year might have something to do with a more rational (if not more reasonable) FDA."

The company had a large presence at the conference, with a busy booth and a very well-attended product theater showcase. We'll keep our eyes on this one, as its slick design and touch-screen interface are sure to catch the eye of users. That said, it is a tethered pump, and as such should not impact Insulet. Instead, it could target the market leaders Medtronic Inc. (MDT:NYSE) ($37.03/Not Rated) and Animas.
Asante Solutions Inc. (private) did not have a booth at the conference, but we met with management and got our hands on the Pearl, the company's new modular insulin pump that uses prefilled insulin cartridges. The product is expected to begin controlled commercialization by year-end 2012. Asante will also go the pharmacy benefit route and utilize the tethered pump in a pay-as-you-go model.


TLSR: Who else did you visit at the conference?


WP: Medtronic submitted a premarket approval (PMA) application to the FDA for its 530G combo CGM/pump (called the Veo internationally). The system features low-glucose suspend technology as well as the new six-day Enlite sensor, which was highlighted as having an overall MARD of 13.6% across six days of readings in type1/type2 patients. Given FDA timelines and the multiple rounds of questions seen with DexCom's and Insulet's latest filings, we believe the application is likely to take at least a year. If approved by the FDA, the MiniMed 530G system will be the only integrated insulin pump and continuous glucose monitor in the United States that automatically suspends insulin delivery if the sensor glucose value is equal to or below the low threshold value. Medtronic's PMA submission includes data from the in-clinic ASPIRE (Automation to Simulate Pancreatic Insulin Response) study, which met its efficacy endpoints. The study showed a reduction in time spent below the low-glucose threshold in people with diabetes using the Threshold Suspend Automation feature, as compared to conventional pump therapy. The in-home ASPIRE study is still ongoing.
The company is also working toward a six-day approval for its new Enlite Sensor, which is currently in the regulatory process at the FDA. Reported results showed an overall 13.6% MARD over six days of readings in type1/type2 patients.


TLSR: You said that you left feeling positive about the diabetes space. Why?


WP: We came away from the conference with the impression that there is a stronger interest in the space. We were bolstered by the innovative technologies showcased and encouraged by feedback about regulatory timelines from management. The fact that it is an election year might have something to do with a more rational (if not more reasonable) FDA.

William Plovanic joined Canaccord in 2007 as managing director, medical technology equity research analyst. He has been a publishing sell-side analyst with coverage of medical devices for more than 15 years. Plovanic's areas of coverage include orthopedics, diabetes, obesity, neuro-technologies, dialysis, aesthetics and general surgery. In 2009, Plovanic was ranked as the #2 earnings estimator for healthcare equipment and supplies by StarMine. In 2003 and 2004, Plovanic was selected as a Wall Street Journal "All Star" analyst in the medical device sector and in 2002 was named the #1 analyst by StarMine for stock-picking and performance in the medical technology sector. Plovanic is a frequent presenter at medical and industry meetings. Prior to joining Canaccord, Plovanic was a managing director and senior research analyst at First Albany (now Gleacher & Company). Previously, he worked at PMG Capital covering medical devices and products. He also worked as director of research for the capital markets division of LaSalle St. Securities LLC, where he focused on the small-cap healthcare, technology and biotechnology industries. He graduated from Bradley University with a bachelor's degree in finance and is a chartered financial analyst.

Want to read more exclusive Life Sciences Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.


DISCLOSURE:
1) The following companies mentioned in the interview are sponsors of The Life Sciences Report: Medtronic Inc. and Johnson & Johnson. Johnson & Johnson and Medtronic Inc. are not affiliated with Streetwise Reports. Interviews are edited for clarity.
2) William Plovanic: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family am paid by the following companies mentioned in this interview: DexCom Inc., Insulet Corp. and TranS1 are investment banking clients of Canaccord Genuity Inc. Additional information, including disclosures regarding all securities under research coverage, is available at http://www.canaccordgenuity.com/en/ODD/pages/disclosures.aspx. I was not paid by Streetwise Reports for participating in this story.

( Companies Mentioned: DXCM:NASDAQ, ECTE:NASDAQ, PODD:NASDAQ, JNJ:NYSE, MDT:NYSE)

Source: Special Report from the ADA: William Plovanic Identifies Companies with Promising Diabetes Solutions, Prospects:

These Teen Geniuses are on a Path to Change the World

By Miichael Robinson for Money Morning
www.moneymorning.com

He's barely old enough to shave... but Jack Andraka is already hard at work helping America win the war on cancer.

Just last month, the Baltimore-area whiz kid took top honors at a key contest hosted by Silicon Valley legend Intel Corp. (NasdaqGS: INTC). He invented a low-cost, cutting-edge cancer screen that could save thousands of lives every year.

Andraka now ranks as a rising star and radical change agent who could have a huge impact on high tech and medicine. He also pocketed a cool $100,000 in prize money.

And all at the ripe old age of 15...

He's one of the reasons why I say it pays to remain upbeat about America's future. He and these six other youngsters I'm about to tell you about demonstrate how much innate talent we have in this country, and I believe that's one reason why we can't help but succeed in the long run.

Don't get me wrong. America faces big challenges - rising debt, chronic job losses, and political gridlock, to name but a few.

Yet we're also the one country that steadily produces bright young entrepreneurs who change the world around them. Where others see obstacles, these teens see opportunities.

They go on to launch the Googles, Apples, and Microsofts of the world, and they leave a trail of wealth behind them.

As investors, we want to spot this talent before others do. That's how we maintain the inside edge that vaults us ahead of the pack when new investment opportunities come along.

Fact is, kids today may not be any smarter than the Edisons and Fords of their day. But in the Era of Radical Change, they have the tools - sensors, computers, software and more - that scientists of old could only dream about.

Today, I want to introduce you to the seven young geniuses who are pushing the limits of science and high tech.

I've drawn their names from the list of winners of two recent contests sponsored by Intel. Here's the thing. Some seven million high school kids from around the world compete in science contests each year. Only a handful makes it to the top of these elite events.

That's why I think we need to start paying attention to these seven young geniuses today.

Teen Geniuses No. 1 and No. 2: The Andraka Brothers

I've already told you about Jack Andraka. His big brother Luke is no slouch, either. He won that same Intel International Science and Engineering Fair (ISEF) award two years ago for a project that looked at how acid mine drainage affects the environment. But certainly no one could accuse Jack of living in his big brother's shadow. He won the 2012 grand prize that paid $75,000 and picked up other awards worth an extra $25,000. Jack came up with a simple dipstick sensor that can spot a key marker that shows the presence of cancer. Intel execs say Jack's sensor is both 28 times faster and 28 times cheaper than current tests. It may even come to market someday - Jack has already applied for a patent.


Their mother says the boys spend little time with sports. They do have tons of science magazines lying around the house. The family often talks about big ideas and how people can do things in new ways.

Teen Genius No. 3: Ari Dyckovsky

An 18-year-old from Leesburg, Va., Ari Dyckovsky took a very esoteric field of science and used it to improve cyber security. He found that that once atoms are linked together through a process called "entanglement," data from one atom can simultaneously appear in another atom.

Using this method, groups that need high levels of network security could send encrypted messages long distances without the risk of theft. That's because the data wouldn't need to "travel" to its new location; it would simply appear there.

Teen Genius No. 4: Nicholas Scheifer

OK, there's one guy on the list who doesn't live in America. Turns out he's Canadian and hails from the Toronto area. But like many foreign-born high-tech whizzes, he made his name right here in the Good Old USA.

Nicholas Scheifer, 17, claimed the ISEF $50,000 second prize this year. Turns out his hunch about how to improve search-engine results was correct. He tweaked standard queries so they would work better in a mobile world that values shorter texts, like those from Twitter and Facebook. "The issue is how to make search engines understand the subtlety of words the way humans do," Nicholas said. "There's a lot of exciting information out there, but it's useless unless we can find it."

Teen Genius No. 5: Nithin Tumma

In March, Nithin Tumma won $100,000 in Intel's annual science talent search. His project could lead to a better, less toxic treatment for breast cancer. Tumma also found some potential targets for future cancer therapies. He studied the molecules operating inside cancer cells and found that by thwarting certain proteins, doctors might be able to slow the growth of those cells and make them less deadly. He's 18 and hails from the Detroit area.

Teen Genius No. 6: Andrey Sushko

Don't tell this 17-year-old that model boats are just toys.

Andrey Sushko turned his childhood hobby into a robotics breakthrough. That's how he took 2nd place in the Intel talent search and walked away with $75,000. Hailing from Richland, Wash., he designed a tiny motor that uses the surface tension of water to turn its shaft. Experts say it could help push forward the field of micro-robotics. The son of two scientists, Andrey is now collaborating with a key federal lab on ways to improve the motor.

Teen Genius No. 7: Mimi Yen

Mimi Yen's study of worm mutations won her $50,000. The 17-year-old from Brooklyn plans to attend Harvard University, with an eye toward a degree in biology. She mapped the gene that causes mutant behavior in a microscopic worm often used in research. Intel execs say Mimi's work may help scientists learn more about how genes affect variations in human behavior.


Let me close by noting that not every teen these days wastes time texting or watching reruns of the TV show Jersey Shore. Many really do get out of bed every day looking for ways to change the world. In the Era of Radical Change, a lot of them will succeed in doing exactly that.

And we'll be watching...


P.S. If you want to find a way to profit from the next generation of tech breakthroughs, the Era of Radical Change newsletter is a great place to start.

And you can't beat the price. You can get it free by clicking here.

About the Author

Michael A. Robinson is one of the top financial analysts working today. His 30-year track record as a leading tech analyst has garnered him rave reviews. The first analyst to uncover the rare earth mineral crisis, he amassed cumulative gains of 990% for his readers in just 16 months. Today he is the editor of Radical Technology Profits. He also edits the Era of Radical Change e-letter that explores "what's next" in the tech investing world. Learn more about Michael on our contributors page.

View articles by Michael A. Robinson

Source: These Teen Geniuses are on a Path to Change the World:

5 Ways to Spot the Next Hot Biotech Stock

June 12, 2012
By Keith Fitz-Gerald for Money Morning
www.moneymorning.com
Source: 5 Ways to Spot the Next Hot Biotech Stock:

It's not enough to understand long- term trends, today's investors need to have the ability to move quickly, especially when it comes to biotech stocks. But here is what you need to know about biotech stocks: none of them are created equal.

For all their potential, bio tech stocks remain among the most challenging for investors like you to identify, select and earn money on.

However, with a little bit of the right guidance you can narrow your list to the stocks with the highest likely upside.

In fact, I've developed a five- point checklist of what I look at when screening biotech stocks that I'd like to share with you.

It may not be a road map. The biotech sector just isn't that easy and "x" almost never marks the spot.

But it is a great place to start if you are serious about separating the pretenders from the contenders.

Five Steps for Successful Biotech Stock Investors

As you begin to break down a potential stock consider the following as it relates to your decision.

1) Choose your niche.

Biotech is a big term and an even bigger sector. There are literally thousands of companies trying to make their move in everything from vaccines to nano-technology.

There's quite literally no way you can know everything, so stick to the parts of the sector you believe have the biggest potential.

For instance, I think some of the biggest innovations and profits will come from bio tech companies that link living systems with their digital counterparts.

So I tend to concentrate my biotech investments in companies that are exploring synthetic biology and computational bioinformatics.

To me it's a no brainer.

While there is no question that traditional bio tech will be big, over the next few years we will see the line blur very rapidly between what we need to live and how we actually live - aided by technology.

Admittedly, I have a rather selfish reason...

Alzheimer's runs in my family so in a way I'm chasing my own gremlins. You may or may not be chasing yours.

Point is, choose a niche you have an interest in and learn everything you can about it.

2) Stick to companies with the "right" kind of debt.

This one is tricky because obviously debt is a loaded word right now. With governments spending trillions on completely misguided bailouts, it's easy to forget that debt can also be used to generate profits, particularly in early stage companies. When you think about it this makes sense. The average medical tech company, for example, now spends tens of millions simply getting their drug ready for laboratory testing. Add to that millions more in human trials where maybe - just maybe - the drug will be approved.


Then there is the time. Often times the process takes a decade or more after the initial development. As onerous as this sounds, keep in mind that it's against a revenue stream that could literally be in the billions. Come up with a blockbuster, and you can be in fat city for years. What's a blockbuster? I define that as a drug or technology that could potentially generate sales in excess of a billion dollars a year.


But back to the debt. What you want to see in a biotech company is steady funding. Conversely, companies that attract an initial investment then burn quickly through it without being able to gather more funding are one shot wonders. With companies like that you might as well go to Vegas.

But if the debt comes as part of an overall set of progress payments in exchange for specific developmental milestones, that's a very different case indeed. Take MicroMet for instance. It's a story about what can happen when a bidding war develops around progressive developmental payments for a promising group of therapies---in this case cancer immunotherapies.


Amgen (Nasdaq: AMGN) ultimately swallowed MicroMet for $1.16 billion, handing investor s the opportunity to capture 61.83% in the process. I know, because my readers were among them.

3) Understand that volatility is part of the package.

Just like debt, understand that there is good volatility and bad volatility. Biotech companies with bad volatility tend to move wildly yet are still generally correlated to the markets. This suggests that they really don't have too much going for them. The true winners often move independently of broader market conditions. Not always mind you, but enough that you can screen for a kind of "anti-correlation" for lack of a better term.

This can be hard to do because many promising bio-tech companies have very small market capitalizations and even smaller daily trading volume. It means you need to look behind the numbers to see if you can account for the price swings. Are insiders buying or selling? Or, has an institution stepped up with the sort of payment "plan" investment I've just referenced?

Many times the big pharma companies will set up a series of structured investments that keep them off the radar while simultaneously keeping values low enough to represent a solid risk/reward ratio. Their thinking is sound. After all, why tip off the markets when that makes a sweetheart deal more expensive for them?

Be cognizant of the story behind the story.

4) Spread your risks.

Bio tech investors need to recognize that the odds are stacked against them from the get go. While that doesn't necessarily mean you will lose, the odds of winning depend on carefully placing your bets and maintaining an adequate book. You really can't adequately play unless you're willing to put at least $5,000 on the table and be comfortable with the idea you may lose 90% of it before one of the choices you make pays off. Michael Milken of Drexel Burnham Lambert famously used to use this strategy back in the late 1980s with junk bonds. He'd buy 100 of them knowing full well that 98% would blow up and that the 1-2% that hit would hit so big he could laugh all the way to the bank.

His compensation was more than $1 billion in a four year period-- - a new record at the time according to the NY Times. It's worth noting that he had only four losing months in 17 years spent trading. Today he's heavily involved in medical research presumably for the same reasons we are...because they hold great promise.

5) Look for the Jolly Roger

Recent venture capitalist estimates suggest that life sciences investments may fall to only $2.5 billion in 2012. This is because many VC funding sources have been burned over the past few years. Instead of crying me a river, you can use that to your advantage. VC firms are like a bunch of modern pirates in that they go where the money is. That's why you want to figure out where they've hoisted the financial equivalent of a "Jolly Roger."

Right now buyouts are hot. Limited partners--a.k.a venture capitalists--won't take on new investments unless they see a path to liquidity in five years or less. That includes a buyout by a major pharma or tech company or a licensing deal from one of the same. In other words, VC firms want to identify their exit strategy before they take a stake and put up the funding.

It only stands to reason that if you can tie a specific VC to the areas in which you are interested in and even more specifically to a particular company then you've got a good shot at a picking a winner. As for IPOs, they are not the magic ticket they used to be. In the wake of the botched Facebook IPO, the public has only learned to distrust the process. At the end of the day though, for all its difficulties, investing in biotech can be one of the single biggest roads to profitability.

Just make sure you've got an idea where you're headed and a rock solid grasp on risk management. The last thing you want to do is blow your money on a promise that really isn't there.


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Tags: Biotech, biotech investing, biotech news, biotech stock market, biotech stocks, biotech stocks 2012, biotech stocks to watch